The emergence of the crypto industry started in 2009, and it has undergone significant expansion ever since. In 2019, Fintech investments reached $55.3 billion. Yet despite the widespread adoption of digital assets, the pace of crypto regulation hasn’t kept up with the industry growth.  

According to a 2022 report by Chainalysis, the top 10 countries with the highest rate of crypto adoption are: Vietnam, Philippines, Ukraine, India, US, Pakistan, Brazil, Thailand, Russia, and China. This growth has led to various consequences, including the arrest of FTX's Sam Bankman Fried in 2022. 

Amid increasing interaction between the crypto economy and the rest of the global financial system, the crash of crypto asset prices and liquidity and collapses like Terra, 3AC and Genesis have led many to wonder if 2023 will be marked by a move toward increased regulation of digital assets.

In 2023, companies, investors and lawyers should prepare for changing trends in cryptocurrency regulations. Here are 4 key trends to expect in 2023:

1. Tougher Cryptocurrency Regulations Following Scandals

The multi-billion-dollar cryptocurrency exchange scandal involving FTX has caused a stir in the financial world. As a result, countries and financial regulatory bodies will take action to protect investors. The Financial Stability Board (FSB) intends to accelerate its work on new regulations in response to the recent crypto scandal, according to the Financial Times.

2. IOSCO Pushes for Global Crypto Regulations

The International Organization of Securities Commissions (IOSCO) is a global financial organization with members from over 100 countries and the ability to regulate 95% of global markets. Ashley Alder, chairman of IOSCO, believes IOSCO should regulate the crypto market in 2023, citing the crypto industry as one of the important "three Cs" (COVID-19, Climate, and Cryptocurrency) that IOSCO should focus on this year. He believes that more stringent global regulations are needed to combat cybersecurity challenges and to support vulnerable financial investors and climate finance initiatives.

3. IMF Works on Expedited Global Crypto Regulations

The International Monetary Fund (IMF) has been working on global regulations for cryptocurrencies since 2021. In 2022, it established a Resilience and Sustainability Trust and required Argentina to "discourage" the use of cryptocurrencies in exchange for a loan. The IMF is concerned about inadequate disclosure, lack of strong operational governance, and potential for facilitating money laundering and terrorism financing in the crypto market. It seeks a globally-coordinated effort with standard rules and data across borders to supervise crypto activities.

4. More Countries Implement and Enforce Crypto Regulations

Due to the growth of the crypto market, many countries have created their own regulations and more will develop regulations in 2023. Regulations vary greatly between countries, with some being crypto-friendly and others cracking down or "discouraging" it. Some examples are El Salvador recognizing cryptocurrency as legal tender, Saint Kitts and Nevis declaring it legal tender, Lugano allowing citizens to pay taxes with crypto, Belarus offering tax incentives for digital asset ownership, and Argentina "discouraging" crypto use to receive an IMF loan. The UK's Financial Conduct Authority has also warned citizens about the crypto industry.

5. Framework, rules and impact across EU

In 2020 the ECON proposed an agreement for a regulation framework on the Markets in crypto-assets (MiCA) for the first time. It passed legislation back in October 2022.

Conclusion

In essence, it is crucial for companies, investors, and their lawyers to be aware of these trends and prepare for the new laws and requirements in the crypto market in 2023.

Existing gaps might be closed by the establishment of a self-regulatory agency for crypto markets. However, there is debate over whether this would have as much authority as a traditional regulatory agency, and it would involve making crypto firms responsible for regulating themselves.

From a whole spectrum of perspectives, 2023 looks set to be a defining year for cryptocurrencies, crypto assets and central bank digital currencies. The regulatory debate surrounding this will be far-reaching and vibrant with passionate advocates for each of the main options. These include: strangling crypto through regulation; creating a discrete regulatory regime for crypto; bringing crypto within the existing financial system; and identifying and plugging existing gaps in laws but otherwise relying on caveat emptor.

March 14, 2023